Feds Slam Apple and Publishers With E-Book Price-Fixing Charges

The United States Department of Justice filed suit on Wednesday against Apple and several book publishers over what it claims is a conspiracy to raise retail e-book prices and limit competition in e-book sales.

The defendants changed the business model governing the relationship between publishers from the wholesale model, which gave retailers the freedom to establish their own retail prices, to an agency model, wherein retailers would act as publishers' agents and would have to stick to the retail prices set by the publishers, the DoJ alleged.

The DoJ contended that the publishers wanted to limit Amazon's ability to discount e-books.

"We are pleased that the U.S. Justice Department and Attorney General [Eric] Holder agreed with our analysis that Apple and some of the nation's largest publishers engaged in anticompetitive practices," said Steve Berman, lead counsel in a class-action antitrust suit filed against Apple over e-book pricing.

The DoJ filed the antitrust lawsuit in the U.S. District Court for the Southern District of New York. On Wednesday, the DoJ also filed a proposed settlement with Hachette, HarperCollins and Simon & Schuster.

Apple, Penguin and Macmillan continue to fight on.

More on the DoJ's Allegations

The DoJ lawsuit alleges that the conspiracy began in the summer of 2009. It contends that Apple facilitated the collective effort of the publishers named in the DoJ's lawsuit to end retail price competition by coordinating their transition to an agency model across all their retailers.

Cupertino understood this would result in higher prices to consumers, the DoJ contended. It quoted the late Apple CEO Steve Jobs as saying Apple would get a 30 percent cut of the sale price and the customer would pay more.

Over three days in January 2010, each of the publishers named in the lawsuit entered into a functionally identical agency contract, the DoJ alleged. These would go into effect simultaneously in April 2010, and they changed the industry permanently.

Among other things, the publishers then imposed agency agreements on all their other retailers, taking away the retailers' ability to compete on price, and limited retail price competition among themselves, the DoJ alleged.

Apple did not respond to our request for comment for this story.

Terms of the Settlement

The DoJ's proposed settlement with Hachette, HarperCollins and Simon & Schuster requires these publishers to terminate their agreements with Apple and other e-book retailers. It also bars them for two years from entering into new agreements that would constrain retailers' ability to offer discounts or other promotions.

Unilateral agreements reached between companies are legal and appropriate, stated acting U.S. Assistant Attorney General Sharis A. Pozen, who led the DoJ's efforts. However, when companies get together and conspire to enter into agreements, that's illegal and anticompetitive.

Among other things, the settlement also will bar the publishers involved from conspiring with or sharing competitively sensitive information with their competitors for the next five years. They'll have to notify the DoJ of any e-book ventures they plan to undertake jointly.

Hachette Harrumphs

"After much deliberation, Hachette Book Group has reluctantly agreed to join the settlement of this matter with the U.S. Department of Justice and to begin the process of settling with the State Attorneys General," company spokesperson Sophie Cottrell told MacNewsWorld.

The "costs, uncertainties and distractions" of litigation with government plaintiffs "with virtually unlimited resources" would be "too disruptive to our business," Cottrell remarked.

Further, Hachette has made no admission of liability, Cottrell stated. The company unilaterally adopted the agency model "to facilitate entry by a new retail competitor and to increase the diversity and health of retail booksellers, and we took these actions knowing that Hachette itself would make less money than before the adoption of agency."

More E-Book Troubles

Meanwhile, Tennessee and 14 other states reportedly jointly filed suit against Apple, Macmillan and the Penguin Publishing Group on Wednesday, alleging they engaged in price-fixing of e-books in violation of the states' antitrust laws and the federal Sherman Antitrust Act.

The suit was filed in U.S. District Court in Austin, Texas. Other plaintiffs in this lawsuit include the states of Arizona, Connecticut, Texas, Iowa and Vermont.

The EU is also looking into the question of whether or not Apple and several publishers colluded to fix e-book prices.